MNI: Fed Sees Potential Half-Point Rate Increase By 2023

The Federal Reserve on Wednesday brought forward the expected timing of policymakers' first interest rate increase since the Covid pandemic into 2023, but offered no hints about reducing USD120 billion of monthly bond buys.

The Fed's dot plot showed officials' forecasts for a policy rate of 0.6% 2023, up from 0.1% in March. Seven officials are now looking for a rate increase in 2022, up from four in March.

"Indicators of economic activity and employment have strengthened," the FOMC said, repeating its March statement. "Inflation has risen, largely reflecting transitory factors."

The Fed changed its characterization of inflation to "having run" below its 2% target from "running" below target, an acknowledgment of recent readings well above that figure which the Fed has signaled are likely temporary.

The Fed's forecast for 2021 inflation jumped to 3.4% from from 2.4% but the central bank sees PCE returning to 2.1% by 2022.

Those readings have ratcheted up pressure on the Fed to reconsider its low for long stance as markets wonder whether the economy might overheat because of significant fiscal stimulus.

The Fed left official interest rates in a zero to 0.25 percent range where they have been since March of 2020 and reiterated the pledge to keep buying bonds at the current pace until the economy makes "substantial further progress" toward the Fed's price stability and full employment goals.